Owning a penny stock sometimes can be quite excruciating and very risky. But as they say, the higher the risk the higher the return. For someone who loves to take calculated risk, my appetite for penny stocks is huge and lately I have been getting a lot of satisfaction from it.
Some months back, I took a huge bet on Vono Products “Vono”, a penny stock that was in the doldrums of the bears and had in fact remained a no go area for many investors. This naturally caught my attention and so I decided to dig further.
I have several reasons for deciding whether to buy a penny stock or not. It could be that I think it is undervalued or that the stock has a history of gaining momentum whenever it is about to declare dividends or if it is owned by a parent company that is in its own right a solid company. These are just some of my buy signals.
My main reason for buying Vono was because Vitafoam had a majority stake in the company. With Vono still in the red, Vitafoam would have had to solidify a key investment in its subsidiary since efforts to run it profitably as a stand- alone company had failed. A merger just had to be in the offing.
I also figured buying Vono was an indirect way of buying Vitafoam whose share price had jumped up due to declaration of dividend and bonus. Since Vitafoam was off my reach, I thought Vono was a likely target. Also, Vitafoam had taken months to release its full year results providing so much information asymmetry that most times can create a potential value proposition.
And so I moved in quickly. I bought in tranches at an average of price of ninety-four kobo. I like to buy in tranches, as doing so helps ensure i continue to average down my price especially of it is a bearish stock. As usual, I continued to hope that my prediction of the merger will come through and thus guarantee my returns.
Shortly after merger talks were announced! Vitafoam was going to merge with its subsidiary Vono and the market went gaga. The share price has been rising by about 9% nearly every day for the last two weeks or thereabouts. By the time I was set to sell the value of my investment had doubled (100%).
I sold half of my holdings at one naira seventy-five kobo and one naira ninety-four kobo respectively. Leaving me with a profit of slightly over a 100% for the quantity sold.
Penny stocks can be pain…but when it does well it pays!!
Follow Onome on Nairametrics weekly for his journey into the world of Penny Stocks